Carbon Budget Order 2021

Lord Lansley Excerpts

Thursday 10th June 2021 Grand Committee

[Lord Lansley (Con)]

My Lords, I am pleased to follow my noble friend and to thank him for his clear and concise explanation of the Carbon Budget Order and, in particular, for what he said about the ambitions that will support it by way of decarbonisation strategies and the promotion of a green industrial revolution. These are tremendously important.

As a Conservative, to go all the way back, I was Margaret Thatcher’s last director of research. I am proud of the fact that the Conservative Party has been for 30 years, with perhaps the slight exception of George Osborne as Chancellor of the Exchequer, consistently promoting a clear understanding of the necessity of tackling climate change and delivering on challenging climate change objectives.

I want to make a point about delivery. As paragraph 115 of the impact assessment states

“the policies required to meet the sixth carbon budget levels are as yet undecided”.

All the things that my noble friend referred to are tremendously important and I thoroughly subscribe to the need for us to deliver on carbon capture and storage. I just know, from personal experience, that we spent 20 years trying to deliver that with a commercially sustainable design. We need to deliver new nuclear generation and the limitations we have on that at present are obvious to all. We need to deliver on much more efficient energy storage and hydrogen capacity, and a strategy that enables us to convert to hydrogen in many of our transport systems. All those things are tremendously important and we cannot operate without them; at the same time, we are going to need dramatic fiscal incentives, and those are the points to which I want to refer.

My noble friend Lord Young of Cookham quite rightly pointed in a previous debate to the anomaly of our subscribing to challenging, ambitious decarbonisation targets while at the same time maintaining a freeze on fuel duty. We cannot carry on like this. In a previous debate in Grand Committee, I talked about the necessity of, for example, giving stamp duty relief on energy-efficiency measures in homes. I hope we will see something done on that, because the green homes grant did not work, which is the point we were making at the time.

On 19 May, we had the first auction under the UK Emissions Trading Scheme. I will focus on the importance of developing that as a basis for our decarbonisation strategies and creating a powerful fiscal incentive for decarbonisation. Clearly, this can work; we have seen in the power generation sector that the carbon price support at £18 per metric tonne has enabled us to drive out coal from power generation, but it is not set at a level that will enable us to reduce and eliminate gas-fired, fossil fuel-fired power generation. We need to increase the carbon price support level.

If we are serious about this, we need to accelerate the process of phasing out free allowances under the emissions trading scheme. We need to ensure that the ETS cap on carbon emissions each year is sustaining downward pressure. At the moment, it is in fact set at a higher level than the carbon emissions levels in 2019 and 2020. We must go further and faster. We should raise the floor price from £22; without much notice being taken, the Chancellor raised it from £15 to £22 back in November. We must continue to raise it.

The likely result of all these measures is that we will have a substantial increase in carbon price under the emissions trading scheme. Our industry cannot sustain that unless we have international alignment and, if necessary, carbon border adjustments. The European Union is presently—next week, I think—issuing further detail on its planned legislation for a carbon border adjustment. In the G7 and our international negotiations, it is more important for us to align carbon pricing and the emissions trading schemes than to align corporation tax rates. That is where we should be putting our effort in Carbis Bay. If we can bring other leading economies—mostly notably the Americans, but the Chinese have not yet committed—to an aligned emissions trading scheme, we can escape the trap of carbon border adjustments, which would lead to an endless succession of non-tariff barrier arguments between countries, interfering with free trade.

We really have to see the UK take a lead in the months ahead. We took a lead in Europe on the emissions trading scheme; we must now take a lead alongside Europe and, more importantly, the United States and other leading economies, in creating a carbon pricing and emissions trading scheme which is applicable and effective globally—ideally without carbon border adjustments, but we must legislate for them if necessary.